Mixed oligopoly, state-owned banks’ shareholding reform and foreign capital penetration

Abstract

This paper examines the impact of the policy on eliminating the ratio of foreign shareholding in banks in a mixed oligopoly model. Its analytic results show that state-owned banks should encourage privatisation along with an increasing proportion of the domestic share in multinational banks. Furthermore, we argue that the increase in domestic stockholding of multinational banks raises domestic private firms’ profits but decreases their social welfare in the deposit market. The results of numerical simulation show that when the quantity of private banks is fixed, foreign banks tend to enlarge their stake and strengthen their controlling power.